New Tools Provide Significant Opportunity For Asean Banks To “Underwrite Regional Food Security”, Through Better Management Of Soft Commodity Risks

New research from Global Canopy, developed in partnership with WWF, has found that banks operating in South East Asia and parts of Latin America stand to benefit from improving policies to manage the negative environmental and social impacts of beef, soy, palm oil, and seafood production. WWF has valued goods and services from the ocean economy at around $2.5 trillion each year, with SE Asia set to produce a quarter of the world’s seafood by 2030, a core sector of the blue economy.

However, despite some safeguards against labour rights issues, none of 24 banks in the region assessed have a seafood-specific lending policy.  This contrasts with the eight large global banks that have operations in SE Asia, including Deutsche Bank and Standard Chartered, who all have some form of sustainability policy on seafood.Banks can upgrade their policies to include seafood and make the most of the opportunity that sustainable seafood represents now and in the future.

In the case of palm oil the research found that almost 30% of SE Asian banks assessed now have a specific policy to govern lending to companies in the palm oil sector, and two have introduced innovative financial incentives to palm oil companies to be more sustainable.

The findings emerged from a new package of support added today to Global Canopy’s SCRIPT(the Soft Commodity Risk Platform), which was launched in April and aims to help banks and investors analyse their exposure to risk in soft commodity supply chains.The guidance and policy tool have been developed to meet the needs of banks in South East Asia and Latin America and to minimise the environmental and social impacts of their loan books. Financial support for the project has come from the Gordon and Betty Moore Foundation.

Today’s package of support added to SCRIPT includes:

• An updated Policy Benchmarking Tool to help banks assess the strength of their deforestation and seafood policies against 60 peers globally and regionally.
• Materiality guidance to demonstrate the business risks facing companies operating unsustainably in seafood supply chains.
• Corporate guidance and a briefing paper to set expectations for the boards of companies operating in seafood supply chains. The expectations are intended to foster more effective financial institution-to-company engagement around environmental and social impacts associated with aquaculture and fisheries.

Tom Bregman, Senior Sustainable Finance Associate, Global Canopy said:

“The banking sector in South East Asia has a historic opportunity to underwrite regional food security and reap the multi-trillion dollar benefits across its lending and investment portfolios. But first there is a real need to put in place policies that properly assess the environmental and social risks of those they finance. Every year, over nine million hectares of tropical forests are cleared to make way for the production of soft commodities such as palm oil, soy, cattle, and timber. And more than 30% of the world’s fisheries have been pushed beyond their biological limits.“ 

Raj Kundra, Vice President, International Finance, World Wildlife Fund:

“While there are encouraging signs that regional banks are starting to act in areas such as labour rights or palm oil, there is still a long way to go. The majority of banks assessed do not have adequate seafood and soft commodity policies to seize the opportunity of financing the food security of tomorrow.That’s why today’s tool and guidance is so important. They help provide a platform to bridge the capacity gap, enabling banks to develop meaningful policies that help manage supply chain risks and opportunities.”

Today’s SCRIPT launch also found that of 24 banks in Brazil and Paraguay, only one has a commitment to reduce deforestation caused by companies in its portfolio. And of 14 banks in Brazil, only fourspecifically require companies to demonstrate legal land tenure and compliance with the Forest Code.

SCRIPT helps financial institutions understand how ongoing environmental degradation threatens to destabilise the global economy. Many industries, including agriculture and seafood production, are dependent on the ongoing provision of ecosystem services, underpinned by nature. It has been estimated that land use change alone cost the global economy between US$4-20 trillion per year between 1997 and 2011^[1]. Due to these impacts and dependencies, companies are facing increased reputational, operational, and regulatory risks, which can affect their ability to repay capital. Through their commercial loans, bondholdings, and financing of projects, financial institutions are exposed to these companies, yet are doing little to encourage them to minimise their impacts. 

^[1]http://wedocs.unep.org/bitstream/handle/20.500.11822/19113/Costanza_et_al_GEC_2014_%2B_SI.pdf?sequence=1&isAllowed=y